New capital city megaproject: Tinkering with the 'power' of Nusantara Authority
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Megaproyek ibu kota baru: Utak-atik ‘kuasa’ Otorita Nusantara
31 May 2023
By: Tegar Arief
Time and time again, tinkering with regulations has been the government’s strategy to attract investors to Nusantara. This time, policy holders are targeting the authority of Nusantara Capital City Authority (OIKN) to improvise the investment permit provisions.
The regulation is Government Regulation (PP) No. 27/2023 on Special Authority of the Nusantara Capital City Authority that was issued by President Joko Widodo on 15 May 2023.
In the regulation, the most important clause is related to the highest authority in IKN that can provide investment permits through the online single submission (OSS) risk-based approach (RBA) mechanism.
Firstly, the norms, standards, procedures, and criteria (NSPK) can be prepared independently. So, OIKN can ignore the central government’s NSPK.
Secondly, a special access rights over OSS. A special access rights is a special OSS RBA for OIKN to directly access and modify the business permit process to meet their needs and characteristics.
Then, they can provide business permits, environmental approvals, building permits, and certificates of functionality. Next, the legality to establish cooperation with partner regions, other regions, and international partners.
“The authority includes the provision of investment permits, ease of doing business, and special facilities for parties that support financing for the preparation, development, and relocation of IKN, as well as the development of Nusantara and partner regions,” the regulation states as quoted by Bisnis.
It is hard to argue that the new regulation that was issued provides more leeway for OIKN so that it is easier to attract investors.
Moreover, the capability of the state budget (APBN) to fund the megaproject that is worth Rp466 trillion is extremely limited.
Meanwhile, investment interest in Nusantara is also limited. Until now, policy holders have received letters of interest. Meanwhile, foreign businesses have conducted visits to see the business potential. The most recent visit was conducted by 130 businesses from Singapore.
Indonesian Ambassador to Singapore Suryo Pratomo explained that two public exposes have attracted businesses that want to know more about the business opportunities in Nusantara.
“Nusantara development is the largest project in Southeast Asia worth US$32 billion. For businesses, it is an extraordinary business opportunity,” Suryo Pratomo, familiarly called Tommy, said on Tuesday (30/5).
The enthusiasm of global investors is quite high. However, they are merely interested. So, it will still take long time for the investors to contribute to the development of the city.
Infrastructure
Investors consider the basic infrastructures as well as the budget plan of the government.
Even though the regulation has been revised a thousand times, it cannot guarantee that investors will enter.
The government affirmed that IKN was a large project so it must be treated differently than other projects.
Finance Minister Sri Mulyani, during the Plenary Session of House of Representatives (DPR) yesterday, said that IKN completion could realise an inclusive economic development. “The budget for IKN in 2024 will be allocated by paying attention to the state’s financial capability,” she said.
The Finance Minister added that, along with fiscal consolidation, the government would support the IKN budget by paying attention to the national priority to maintain fiscal continuity.
The government explained that the state’s fiscal contribution was limited to basic infrastructure construction. Next, the remaining construction will be carried out by private companies, public donations, and creative financing.
Meanwhile, economists and business players are suggesting the government to implement various strategies to minimise the use of APBN and optimise private contribution.
It is true that expanding the authority of OIKN is one of the tricks that can attract businesses. However, there is a stronger factor, which is the investment climate.
The competitiveness of national investors is not yet good enough even though investment realisation is growing. It is because the policies of the central government and regional governments are not synchronised.
Besides that, the political year is pushing businesses to wait and see until the current term of office is over.
Learning from past political experiences in Indonesia, the budget of Indonesia often changes every time there is a change in leadership.
“Investors tend to wait and see while they observe the political development,” Indonesia Employers Association (Apindo) Economic Policy Analysis Committee Chairperson Ajib Hamdani said.
Institute of Development on Economics and Finance (Indef) Economist Esther Sri Astuti added that expanding the authority and adding more incentives would attract businesses.
However, the certainty aspect cannot be pushed aside. “Incentives will not be effective without ease of obtaining permits,” she stated.
A thousand ways have been carried out by the government to realise the dream of relocating Jakarta to Kalimantan. However, regulations need to be consistent and synchronised to create a harmony that gives certainty for businesses.
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